BARRIERS OF ECONOMIC GROWTH

BARRIERS OF ECONOMIC
GROWTH

ECONOMIC GROWTH

A positive change in the level of production of goods and services by a country

over a certain period of time is known as economic growth.
Nominal growth is defined as economic growth including inflation, while real
growth is nominal growth minus inflation. Economic growth is usually brought
about by technological innovation and positive external forces.

BARRIERS OF ECONOMIC GROWTH

Any thing that adversely effects economic growth is considered as a barrier or
obstacle for economic growth. Both human and inhuman factors can cause
hindrance in economic growth of any country. The various obstacles are
categorized as:
 Lack of natural resources or improper use of natural
resources
Many developing and underdeveloped countries have low rate of economic growth
because they lack natural resources, like mineral resources face a paucity of arable
land and have few resources of power. These countries are located in central and
South America, Africa, in Indian subcontinent and south East Asia, where tropical
climate prevails. Hot climate is unfavorable for crops. Livestock diseases are
widespread and wheat and insect infestations plague agriculture.

Unemployment
Unemployment is also a major obstacle for economic growth. As unemployment
rate is increasing, these unemployed individuals have nothing to contribute in the
national income or GDP of the country. Since increased population and high rate
of migration has made it difficult for the government to provide employment to all
job seekers.

Overpopulation
World population is increasing at a very rapid rate. Increased population becomes a
hindrance for economic growth. The country has to fulfill the needs of more people
whereas earning hands in the nation are less.

Poor quality of labor force

Poor countries have simply unable to invest sufficiently in their human capital;
expenditures on health and education have been meager.

 Malnutrition

 Low levels of literacy

 Absence of proper medical and educational care

All contribute to a population ill equipped for economic growth.

Lack of capital goods

All underdeveloped countries suffer from a critical shortage of capital goods:

 Factories.

 Machinery and equipment.

 Public utilities and so on.

Low saving potential

Some of the very poor countries such as Ethiopia, Bangladesh, Uganda, Haiti and
Madagascar save only 2-5 percent of their national outputs. Thus when savings are
low the investment in productive facilities is also low.

Investment obstacles
Investment obstacles include

 Lack of investors
  Lack of incentives to invest

Business people in underdeveloped countries may not be willing to assume

the risks associated with investment.

Lack of updated technology

Technological advance and capital formation are closely related. Countries which
have a low economic growth, the basic reason behind this is they prefer labor
saving and capital saving technologies. Due to lack of available capital they are
unable to keep pace with innovative and advanced technology.

Socio cultural obstacles

Tribal allegiances take precedence over national identity confine all economic
activity with in the tribe, eliminating any possibility for production increasing
specialization and trade.

The existence of caste system causes labor to be allocated to occupations on the

basis of caste or tradition rather than on the basis of skill or merit.

Institutional obstacles
Political corruption and bribery are barriers for work on merit and ethics.

Tax systems are arbitrary and unjust. Tax systems that are detrimental to incentives
for work and investment hinder economic growth.

Lack of entrepreneurship
The absence of sizeable and vigorous entrepreneurial class, ready and willing to
accumulate capital and initiate production, indicates that in many cases private
enterprise in intrinsically not capable of spearheading the growth process.

Deficiency of social goods and services

Sanitation and basic medical programs, education, irrigation and soil conservation
projects, construction of highways and transport communication facilities are all
essential good and services yielding widespread benefits. Lack of such public
facilities form an obstacle for production of goods and thus hindering growth of the
economy.

Law and order

Some of the poorest countries are plagued by widespread crime, racial conflict or
borders dispute, which divert both attention and resources from the task of
development. A strong and stable national government is needed to establish
domestic law and order and to achieve a peace and unity.

Trade

Trade and commerce are an important part of economic growth. If for any country
the terms of trade are not favorable the will face a huge gap in the balance of trade
and thus their economic growth will decline.

Conclusion:
Thus economic growth is hindered in the underdeveloped countries by many
factors which can mainly be categorized as

 Economic obstacles

 Political obstacles social and political obstacles

 Administrative obstacles

Many of them are explained above. A great effort from the government and the
public is required for a sufficient rise in the economic growth.

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